May 15, 2018 / 11:46 AM / a year ago

EU Commission urges Italy not to deviate from fiscal commitments

FILE PHOTO: European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, March 12, 2018. REUTERS/Yves Herman/File Photo

BRUSSELS (Reuters) - The European Commission urged Italy to maintain its efforts to reduce its giant public debt in line with European Union fiscal rules, as talks continue to form a eurosceptic government in Rome that wants to boost public spending.

The coalition partners of the possible new Italian executive, the anti-establishment 5-Star Movement and the far-right League, are looking to implement massive tax cuts, abolish unpopular pension reform and introduce new welfare payments - all moves that are likely to increase the country’s debt and deficit.

“It’s very clear that in current times of economic growth Italy needs to put its debt on a downwards trajectory,” the commission’s vice president in charge of the euro, Valdis Dombrovskis, said at an event organized by Politico in Brussels on Tuesday.

Next week the European Commission will publish its annual economic recommendations to member states and will reiterate its call for Italy to continue reducing its deficit and debt, which is the second highest in the euro zone, Dombrovskis said, urging the new government to stay “on the current course” on fiscal policies.

Brussels forecast this month that Italy’s public debt will slightly decline this year, but will remain above 130 percent of the country’s gross domestic product (GDP), more than double the 60 percent ceiling envisaged in EU rules.

“We have to make sure that everybody understands the commitments,” the commissioner responsible for jobs and investments, Jyrki Katainen, told a news conference later on Tuesday.

He said the commission had all reasons to believe Italy will continue respecting EU fiscal rules, which require over-indebted countries to cut their debt and oblige member states to keep their deficits below three percent of gross domestic product.

Katainen stressed that decisions on reforming fiscal rules had to be taken together with other states.

“I don’t see any signs that member states would like to change the rules at least anytime soon or give exceptions to any member state,” he added.

Reporting by Francesco Guarascio, Editing by Alison Williams, William Maclean

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